JSE-listed firm Blue Label Telecoms announced on Wednesday it will sell its shareholding in Blue Label Mobile to DNI 4PL Contracts Proprietary Limited (DNI).
In terms of this transaction, Blue Label will sell 85% of Blue Label Mobile issued shares and all claims on loan to DNI 809.
The price consideration payable by DNI to Blue Label in respect of the deal is R350 million.
DNI will also pay R100 million, which shall escalate at the prime rate of interest plus 2% (compounding annually in arrears) from the fifth business day after the date on which all suspensive conditions are met and the date upon which the board of directors of Cell C resolve that the mobile phone operator passes the solvency and liquidity test.
Blue Label Telecoms also announced that its subsidiary, The Prepaid Company (TPC), has agreed to sell its interest in 3G Mobile. It added that this transaction excludes its share capital held in and loan claims against Comm Equipment Company Proprietary Limited (CEC) to DNI.
TPC will sell 100% of the issued shares in 3G Mobile to DNI for R544 million.
Blue Label Telecoms said the initial consideration will be adjusted by the net amount by which surplus / inadequate provision was made for bad debts, obsolete trading stock in the consolidated audited 2019 balance sheet of 3G Mobile.
3G Mobile distributes mobile devices and handsets to major retailers and cellular network providers.
Both deals are subject to various suspensive conditions including shareholder approval.
The funds obtained from the proposed transactions will be applied to reduce Blue Label’s current interest-bearing debt, the company said.
The JSE-listed company informed investors on Wednesday that the rationale for disposing of its stake in Blue Label Mobile is to deleverage the business.
“The Blue Label group has consistently generated positive cash flows from its trading operations since its listing. These funds have been applied to dividend distributions, share buy-backs and investing activities, at all times ensuring sufficient surplus funds to facilitate working capital requirements,” the company said.
“Over the past two years, significant investments were made, necessitating an increase in interest-bearing debt in order to ensure that the group’s working capital requirements continued to be met. Accordingly, the Blue Label board of directors have made a decision to deleverage the business in order to ensure a more robust and liquid balance sheet going forward.
“The disposals thereof will not have a negative impact on the extensive distribution network that Blue Label has established and will not inhibit its distribution capabilities nor on Blue Label’s ability to achieve its strategic objectives going forward.”
DNI “is the largest wholesaler of Cell C starter packs in South Africa”. However, CellSaf has argued that DNI is potentially much more than that. Blue Label Telecoms owns 45% of Cell C, South Africa’s struggling mobile phone operator.
On 07 August 2017, Net1 – which bought 15% shareholding in Cell C, also announced that it had forked out R1.3 billion to buy 45% of an obscure company named DNI-4PL, with an option to increase its stake to 55%.
In its inspection of confidential documents, CellSaf told the Competition Commission, it discovered references to options between DNI and two of the three companies, according to an M&G report. These would, permanently, enable DNI to take over those two companies. Then “DNI could end up holding up to 27.8%” of Cell C, CellSaf argued at the time.
CellSaf argued that if Net1, in turn, owns 55% of DNI, that gives it another indirect — and undisclosed — 15.3% of Cell C, on top of its direct 15% purchase.
Therefore, Blue Label Telecoms and Net1 can end up owning 75.3% of Cell C — just over the 75% level required in law to pass special board resolutions.
Immediately after the announcement, CellSaf warned that the recapitalisation of the mobile phone operator amounts to a blatant attempt at corporate capture and is likely to collapse under regulatory scrutiny.
DNI is now 20% directly and indirect owned by JSE-listed investment firm Sabvest.
Between June-August 2019, Sabvest bought a 4% direct interest in DNI for R113,5 million.
Sabvest has a 16% indirect interest in DNI through its 34,78% interest in JAA Holdings (Pty) Limited (JAA) which owns 46% of DNI.
JAA is a SPV formed for the sole purpose of owning shares in DNI. – lourie@techfinancials.co.za
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